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Pricing, payment terms and cost
TCO calculator: what an asset really costs over its life
Enter the purchase price, the set-up cost, the yearly running costs and the years you will use it. You get the full cost of ownership and the share the purchase price represents.
Total cost of ownership is the purchase price plus installation, yearly running costs and disposal, less any resale value. At the default numbers it is USD 117,000 over 7 years, and the purchase price is only 34% of it.
Written by Procurement VMS Editorial Team · Reviewed by Michael, Procurement Advisor Expert · Updated
Your numbers
The boxes start with an example so you can see how it works. Replace them with your own figures.
Your result
The purchase price is under half of the true cost. A cheaper machine with higher running costs can cost more over its life, so compare options on this total, not on the quote.
| Running cost per year | USD 11,000 |
|---|---|
| Total cost of ownership | USD 117,000 |
| Cost per year of use | USD 16,714 |
| Purchase price as a share of the total | 34% |
| Total cost in today money | USD 98,936 |
The currency box changes the label only. Enter amounts in the currency you choose.
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How the TCO calculator works
The formula
TCO = purchase price + installation + (operating + maintenance + support) x years + disposal - resale value. Present value discounts the yearly costs at your chosen rate.
The price on the quote is the part of the cost you see first. The rest comes later: energy, upkeep, support, downtime, training and disposal. For many assets the later costs add up to more than the price.
Run the calculator for each option you are considering and compare the totals. The ranking often changes. The total cost of ownership guide explains the cost categories and where to find the data.
The example numbers are illustrative and are not benchmarks. Use your own data for any decision.
How to use it with your own data
- List every cost over the life of the asset, not only the ones on the quote.
- Use real maintenance and energy figures from the supplier datasheet or from a similar asset you already run.
- Enter the same life for every option, and compare totals and the cost per year.
Mistakes that skew the answer
Using different lifetimes for each option
Compare over the same period, or compare cost per year of use.
Skipping the end of life
Disposal and resale can swing the result for large equipment.
Counting only direct costs
Downtime, retraining and the staff time to manage the asset are real costs. Add them as running costs.
What to do with the result
Use the per-year figure to compare suppliers in your next evaluation. If you are comparing software, use a pricing guide from the vendor pricing library for the subscription numbers, and see the payback period calculator for the business case.
Questions about the TCO calculator
What is total cost of ownership?
It is the full cost of buying and using an asset over its life, including purchase, set-up, running costs, support and disposal.
Why does TCO matter in procurement?
The lowest price is not always the lowest cost. TCO exposes running and end of life costs that change the ranking of options.
What discount rate should I use?
Use the rate your finance team uses for investment decisions. If you are unsure, compare the result at 0 percent and at a typical borrowing rate.
Does TCO include the cost of downtime?
Include it if you can estimate it. Add the yearly cost of expected downtime to the running cost.